China Currency Decision Encourages Lawmakers, Admin.

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Author: Vaughan, MartinKoffler, Keith

Trade

Lawmakers said today they are encouraged by China's announcement that it will re-value the yuan by 2 percent against the dollar and allow the currency to float within a narrow band, but vowed to keep the pressure on China to allow the yuan to appreciate more in the coming months. "By itself, what they have done is very modest. What we're hoping to see is further progress in the near future," Rep. Phil English, R-Pa., said. The People's Bank of China announced today that it will reset the peg of the yuan at 8.11 yuan to the dollar, down from the longstanding level of 8.28. In addition, the yuan will now be pegged to a basket of currencies, rather than the dollar alone, and will be allowed to fluctuate by up to 0.3 percent per day.

English said there is no reason to believe that House GOP plans for a floor vote next week on China trade legislation will be altered as a result of China's announcement. But English said he will try to add language to the bill he and House Ways and Means Chairman Thomas introduced last week to respond directly to today's announcement. Currently, the only currency provision in the bill is a requirement for the Treasury Department to issue a report to Congress on how it defines currency manipulation. Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., said today they will decide whether to insist on a vote by the end of the year on their legislation â€" which includes the threat of punitive tariffs on Chinese imports â€" on the basis of whether China's bank allows further upward movement of the yuan. "Clearly, the Chinese have opened the door to more, and we will wait and see," Schumer said. "A 0.3 percent per day change gives the Chinese ample opportunity to get to where we need to be." Schumer said most lawmakers had been looking for a 5-10 percent appreciation of the yuan against the dollar.

In a brief news conference today, Treasury Secretary Snow welcomed the Chinese announcement, calling it "good news" for China and the global economy. "I'm particularly struck by the commitment that the Chinese government has expressed to getting their currency into alignment with underlying demand and supply forces â€" to really letting market forces drive the path that the currency is on," said Snow, who pledged to monitor developments. "I think it's the start of an awfully important process." Asked if the Chinese move would counter protectionist sentiment in Congress, Snow said, "I think this is a very positive development." Federal Reserve Chairman Greenspan, appearing today before the Senate Banking Committee, called the Chinese move "a good start."

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By Martin Vaughan and Keith Koffler